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Buy Walgreens (WBA) Stock on Expanded Kroger (KR) Partnership?

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Shares of Walgreens Boots Alliance (WBA - Free Report) touched a new 52-week high Tuesday morning as investors began to digest the possibilities of what its partnership with grocery power Kroger (KR - Free Report) might do to boost traffic as it expands its reach in the quickly changing retail age.

Kroger Express

Walgreens and Kroger first announced a partnership in early October that will see the pharmacy power begin to sell various Kroger grocery offerings. The pilot program is set to roll out at 13 Walgreens stores in Northern Kentucky, close to Kroger’s Cincinnati headquarters. Customers will be able to order Kroger groceries online and pick up orders at Walgreens locations. At the time, the companies also noted that select offerings from Kroger’s natural and organic Simple Truth brand would be available as well.

Now, the retailers are ready to expand the partnership before it even officially begins. Walgreens customers will soon have access to 2,300 products at the 13 Walgreens test locations. The new “Kroger Express” section is set to include Kroger’s Simple Truth offerings, along with the firm’s Home Chef meal kits and other various grocery items from meat to produce, the companies said in a joint statement Tuesday.

Investors should note that the first pilot store is already up and running, with the dozen other locations set to start “early next year.” On top of the Kentucky trial run, 65 Walgreens locations in the Chicago area will now offer Kroger’s Home Chef “Express” meal kits, which are currently available at many Kroger-owned stores in the area (also read: Should You Buy Kroger Stock Before Q3 Earnings?).

Overview

Walgreens, which also recently grabbed a minority stake in the subscription-based beauty firm Birchbox, must fight to stand out against increasingly diversified rivals. CVS Health (CVS - Free Report) just last month completed a nearly $70 billion merger with insurer Aetna. Plus, e-commerce powerhouse Amazon (AMZN - Free Report) bolstered its business through its Whole Foods acquisition and a $1 billion bid for online pharmacy firm PillPack. Fellow giants Target (TGT - Free Report) and Walmart (WMT - Free Report) have also pushed into new growth areas and offer more online shopping and delivery options than ever before.

 

Outlook

Moving on, we can clearly see that Walgreens plans to boost sales, as well as attract and retain customers through its recent partnerships. WBA stock has kept pace with the S&P 500 over the last decade despite some sustained sideways movement. Plus, the last six months have seen shares of WBA soar over 34% to crush the index’s roughly 1% climb.  

Looking ahead, Walgreens’ quarterly revenues are expected to climb by 9.32% to hit $33.61 billion, based on our current Zacks Consensus Estimate. Meanwhile, Walgreens is projected to see its adjusted quarterly earnings surge by 11.72% to reach $1.43 per share. We should also note that the company has received a substantial amount of positive earnings estimate revision activity recently.

 

Bottom Line

Walgreens is currently a Zacks Rank #2 (Buy) based, in part, on its positive earnings revision trends. WBA stock is also currently trading at 12.9X forward 12-month Zacks Consensus EPS estimates, which marks a substantial discount compared to its industry’s 18.5X average and the S&P’s 16.7X. The chart below helps us see that Walgreens stock appears rather attractive at its current valuation based on where it has traded over the last five years.

Walgreens is also a dividend payer, which always comes in handy. With that said, WBA stock is currently trading right near its 52-week high. Nonetheless, it might be worth considering Walgreens at the moment.

 

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